From: aditya rana
Date: Sat, May 24, 2014 at 1:47 PM
Subject: On the Timeless Wisdom of "Old Turkey" and the Link Between the Gums and the Heart!

Hi!,

The S&P 500 index has been stuck in a tight trading range for a while and the big question which looms ahead is which way the market is likely to break – on the upside reaching new highs for the index or on the downside, followed by a significant correction. At times like these it is helpful to look back at history for clues, and Jeffrey Saut, Chief Investment Strategist at the money manager Raymond James, is a 43 year market veteran and his weekly letters are replete with lessons from history which can offer useful guidance. To summarise:

-The 1923 investment classic – Reminiscences of a Stock Operator by Ed Lefevre – devotes a chapter to lessons that the legendary trader Jesse Livermore (on whom the book is based) learned from a veteran market operator known as "Old Turkey".

– To quote some timeless (and priceless) investment lessons from the chapter:

– "it takes a good many years of study and market experience to fully realize the importance of the market’s basic direction, that is, “Is it a bull market or a bear market?” “What do you think I ought to do?” Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile and, finally, he would say very impressively: “You know it’s a bull market.”

-" Time and again I heard him say, “Well this is a bull market you know,” as though he were giving you a priceless talisman wrapped up in a million-dollar accident-insurance policy. And, of course, I did not get his meaning. It takes most of us years to “get his meaning,” to learn that the big swing is of utmost importance." Old Turkey was one wise old bird who knew how terribly important it is never to lose sight of the main drive, the long-term direction.

– “I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge (Old Turkey) kept on telling the other customers, ‘Well you know this is a bull market!’ he really meant to tell them that the big money was not in the individual fluctuations but in the main movements – that is, not in reading the tape but in sizing up the entire market and its trend."

– "After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who are right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profits. And their experience invariably matched mine – that is, they made no real money out of it. "

– " Men who can both be right and sit tight are uncommon, I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier after he knows how to trade than hundreds did in the days of his ignorance.”

– “The reason is that a man may see straight and clearly and yet become impatient, or doubtful when the market takes its time about doing what he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight.”

-The wisdom of Old Turkey is as relevant today as it was then – and most investors today have not experienced the secular bull markets of ’23-’29, ’46-’64, or even the ’82-’00 bull markets and their experience, based on the ’99-’12 period, is to sell when a a stock goes up 30%-40% and then buy another to try and repeat that performance. They have never experienced holding high quality, dividend paying stocks through a bull market and see the power of compounding work in their favour.

-"Sitting tight" through a bull market is a lesson he has learned the hard way – for example, if one had bought Philip Morris stick at its IPO, and held the stock through all the tobacco suits, it would have beaten every other stock on the NYSE. And we are currently in a secular bull market.

-Since mid-April the S&P has been in a tight 1.5% range, a short distance from its all-time high (see chart below). However, this masks some of the damage which has been done with some high beta stocks off more than 30%. This could either be a prelude to a 10% to 12% pullback that historically the odds suggest should happen sometime this year, or the market could breakout to all-time highs (which is what he expects).

-This type of a trading pattern, while rare, has happened 11 times since 1928 and the market has never fallen into a steep correction – but has usually closed at a new 52-week high within a week.

-From a longer-term perspective, the market has been in a sideways trading pattern for 10 years, making it three such similar ranges since 1929 (see chart below). The arrows and dots mark the nominal price lows, and the valuation lows (price/book, P/E, etc) are reached in subsequent years. In the most recent range-bound market, the valuation low was reached on October 4, 2011.

– It is important to note, that once the market has broken out on the upside of the range, we have always been in a secular bull market – but it has taken several years for investors to embrace equities – for example, after breaching the 1973 high in 1982, it took three to four years for professional investors to embrace stocks again and it took until 1987 for individual investors to do the same (after the market was up 13% in one month, but unfortunately before the crash).

Interesting historical insights and the "sitting tight during a bull market" suggestion by Old Turkey certainly resonates. The point here is that if you have a strong conviction about the long-term trend or valuation of a particular asset, then it is important to be patient and not be swayed by short-term market fluctuations. You may not always get the timing right, but patience will allow your investment to eventually work itself higher. We have been in a bull market in the US for 5 years, and it probably has another one to two years more to go (I am not convinced that we are entering into a long-term secular bull market). More importantly, the non-US markets offer more upside potential (see chart below) – namely, EM, Japan and Europe (particularly the peripheral countries like Spain, Italy and Greece).

Following-up on my note on India last week, a comment on the recent India elections made by an old friend and ex-Morgan Stanley colleague-Madhav Dhar, provides an insightful perspective: "Modi is the best candidate that appears capable of fulfilling where the peoples aspirations already are. Modi understands that growth, jobs, accountability and governance will trump most all else. The electorate already thinks that."

Gums and the Heart:

It has been known for a while that gum and heart disease are closely associated but new research points to a possible causal relationship between the two – with gum disease causing heart disease:

-For the study, researchers infected mice with four kinds of bacteria that are known to cause gum disease. Once the bacteria had been carried into the hearts and aortas of the mice, they measured levels of known heart risk factors — such as cholesterol and inflammation — and found increases in the levels of these risk factors.

-"In Western medicine there is a disconnect between oral health and general health in the rest of the body; Dentistry is a separate field of study from Medicine. The mouth is the gateway to the body and our data provides one more piece of a growing body of research that points to direct connections between oral health and systemic health," s Kesavalu Lakshmyya, of the University of Florida’s Department of Periodontology, said in a statement.

-The findings were presented at the annual meeting of the American Society for Microbiology; because they have yet to be published in a peer-reviewed journal, they should be considered preliminary.

-The mice used in the study were specially engineered to be able to develop severe periodontal disease, so that they could serve as a model for the disease.

-According to the American Heart Association, there is not yet conclusive evidence proving a causal link between periodontal disease and heart disease. The two conditions share many risk factors — such as smoking and age — and they both promote inflammation, the AHA says.

-However, the researchers say that this new finding suggests that there is a potential causal relationship between periodontal disease and heart disease.

Keep your gums healthy by getting them professionally cleaned every six months (more often if you already have gum disease) together with twice a day brushing, flossing and cleaning with an interdental brush. Additional measures which can be very helpful are: gargling with warm salt water at night before sleeping, and an old Ayurvedic remedy (on which the current "oil-pulling" movement is based) : gargling with warmed sesame or coconut oil (you can mix the oil with a bit of hot water!) in the morning for a few minutes, then rinsing your mouth with warm water, followed by a gentle massage of your gums using your fore-finger (dipped in the oil!).